Part 5: The Financial Plan
Building an ISP Business Plan
???
A financial plan provides the core justification for your solicitation of outside funding?the dollars and sense of how you'll make investors' money grow. Sound important?
by Jason Zigmont
My head literally hurts when I have to sit down and crunch numbers. I am not an accountant (IANAA), and my hat goes off to those who are. Before I launch into this column, I want to make absolutely sure you understand that I am not an accountant, and that any financial plan or budgets should be thoroughly looked over by a qualified certified public accountant.
DISCLAIMER:
The information within this column is for educational purposes only and should not be considered financial advice.
So what exactly is a Financial Plan?
Your Financial Plan discloses your current financial condition and details your projected, or pro forma, financial situation and the type and amount of funding you need to get from your current to your projected numbers.
If you are putting together your business plan for internal purposes, your budgets will be your guideline?and would not necessarily reflect the same results as your budgets for outside consumption. This is due to what are called Generally Accepted Accounting Procedures or GAAP. This is where accountants come in. GAAP defines in what ways items such as capital expenditures and the like are reflected or depreciated. We will get deeper into budgets later, but GAAP rules throughout the financial plan.
If the purpose of the business plan is to raise funding, the numbers and assumptions within the Financial Plan will be scrutinized and challenged?as will your request for funding. Before you start your financial plan, you need to determine what type of funding you are looking for and what it will be used for.
Funding usually falls into one of three categories:
Short term debt
Long term debt
Equity funding.
Short-term debt usually takes the form of lines of credit, trade credit, credit cards, and equipment leases. Long term debt usually refers to mortgages and other loans.
Debt is rarely used for operating capital; rather it is usually used to purchase equipment, and in the case of some short term, and most long term debt, is secured by the items purchased. While I do know many ISPs who were funded mostly?or in some cases solely?by credit cards, most operating capital is raised through equity funding, with the occasional small business loan thrown in. For the people providing the funds, debt is less risky, but provides a limited amount of upside usually in the form of interest.
Equity funding provides capital in return for a piece of your company. Usually companies are started on the owner's capital and then grow beyond the current fund source. Many owners have problems giving up their equity, but it is often the only choice for growth of the company. In these Internet days, equity funding is abundant as everyone is looking for the proverbial 'next Yahoo!' Be aware that there are quite a few regulations and issues connected with taking equity funding. Also in taking equity funding you take on a fiscal responsibility to your investors, and they may want to make changes within your company.
First $teps
The first round of outside capital is usually in the form of 'Angel Funding.' Angel funding is seed money that is considered a risky investment by the 'angel,' as angel funding usually comes in the early stages of the company's development.
The next rounds of funding are often from Venture Capital firms. Be aware that both VCs and angels are likely to take a significant portion of your company in return for their investment. My best advice is to be careful and realize that 5 percent of a $100 million company is worth more then 100 percent of a $1 million company. VCs and Angels are also looking for a quick and generous return on investment. (ROI). You will need to demonstrate what their ROI will be and in what form it will be delivered to them.
So now that you have an idea of the different types of funding and an idea of what you need, what goes into a Financial Plan?
A complete Financial Plan consists of the following sections:
Financial Plan Summary
Situational Review
Financial Goals
Cash Flow Planning
Financial Controls
ISP Business Plan - Part 5: The Financial Plan - continued
Financial Plan Summary and Situational Review
These sections provide an overall high level view of your Financial Plan. The Financial Plan Summary and Situational Review should include bottom line numbers such as profit, net loss, gross profit margin and other useful bottom line numbers. Within the Situational review, you want to discuss your financial history, if you have one, and key historical profit and loss numbers.
The Financial Goals section should cover your overall financial goals and how you plan to reach them. Possible goals include higher monthly recurring revenue, lower costs, and positive cash flow. If you are seeking outside financing you should stress either your ability to pay back the debt or maximize the return on investment. You should also discuss your growth rates both historical and projected. Do not be afraid to say that your goal is to make a profit or increase your profit margin. Just because you are an Internet company, does not mean you have to loose money.
Cash-Flow Planning
This sction is an overall view of the cash flow budget, which should be included in the appendix. The first step in determining your cash budget is to determine your fixed and variable costs. Fixed costs include rent, utilities, and general and administrative costs. Variable costs include dial-up ports, phone lines, and any costs that are directly related to each user you add.
Within the budgets in your appendix, you should start with a wages and salaries and determine your variable cost of goods sold. For a detailed explanation of determining your costs, please visit: http://www.howtosell.net/html/archives.html.
Once you have determined your cost of goods sold, you can use either a projection of your past sales or your sales forecast to determine your monthly income and put it together for a framework of your cash budget. Keep in mind that bad debt and accounts receivable will alter your income numbers and should be reflected accordingly.
Ideally you would project out 3 years in advance, but in the Internet business pro forma cash budgets are 1 year projections. A cash budget may look like this: (These numbers are samples only, and do not reflect your business or possible projections.)
Pro Forma Cash Budget for Planning Year 1 (Table 3)
Planning Month 1 2 3 4 5
Total Cash Inflows $3,197.50 $6,858.75 $12,862.50 $19,819.50 $29,093.75
Cash Outflows
??Cost of Goods Sold $611.30 $1,477.75 $2,954.85 $4,883.95 $7,387.45
??Wages & Salaries $12,250.01 $12,250.01 $12,250.01 $12,250.01 $12,250.01
??Payroll Taxes $1,470.00 $1,470.00 $1,470.00 $1,470.00 $1,470.00
??Fringe Benefits $1,715.00 $1,715.00 $1,715.00 $1,715.00 $1,715.00
??Rent & Leases $2,500.00 $2,500.00 $2,500.00 $2,500.00 $2,500.00
??Utilities $750.00 $750.00 $750.00 $750.00 $750.00
??Capital Expenditures $10,000.00 ? ? ? ?
??Internet Connectivity $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
??Travel & Entertainment $1,250.00 $1,250.00 $1,250.00 $1,250.00 $1,250.00
??Marketing $20,000.00 $17,500.00 $15,000.00 $10,000.00 $10,000.00
??Postage & Supplies $250.00 $250.00 $250.00 $250.00 $250.00
??Accounting & Legal $500.00 $500.00 $500.00 $500.00 $500.00
??Miscellaneous $500.00 $500.00 $500.00 $500.00 $500.00
Total Cash Outflows $52,796.31 $41,162.76 $40,239.86 $37,268.96 $39,822.46
Net Cash Flow ($49,598.81) ($34,304.01) ($27,377.36) ($17,449.46) ($10,728.71)
???[Plus]
Beginning Cash Balance $150,000.00 $100,401.19 $66,097.17 $38,719.81 $21,270.35
Ending Cash Balance $100,401.19 $66,097.17 $38,719.81 $21,270.35 $10,541.64
Financial Controls
This section describes what checks and balances are in place to assure that you reach your goals and stay within budget. You should also include how often you will look at the metrics and what corrective action will be taken should those numbers be missed.
In the end your Financial Plan should truly show what financial state your business is or will be in. Readers of your business plan will use this section to determine how much risk there is in investing in your company and what your future growth potential is. After all, when a Venture Capitalist is looking at your business plan, and thinking about investing in your company, what they are really doing is investing in you. You need to show that you are worth investing in and that the firm providing your funding will make money on their investment.
Part 1: The Basics
Part 2: Industry Analysis and Forecast
Part 3: The Marketing Plan
Part 4: Operating & Orginizational Plans
Part 5: The Financial Plan
Part 6: Putting It All Together
Part 5: The Financial Plan
Building an ISP Business Plan
???
A financial plan provides the core justification for your solicitation of outside funding?the dollars and sense of how you'll make investors' money grow. Sound important?
by Jason Zigmont
My head literally hurts when I have to sit down and crunch numbers. I am not an accountant (IANAA), and my hat goes off to those who are. Before I launch into this column, I want to make absolutely sure you understand that I am not an accountant, and that any financial plan or budgets should be thoroughly looked over by a qualified certified public accountant.
DISCLAIMER:
The information within this column is for educational purposes only and should not be considered financial advice.
So what exactly is a Financial Plan?
Your Financial Plan discloses your current financial condition and details your projected, or pro forma, financial situation and the type and amount of funding you need to get from your current to your projected numbers.
If you are putting together your business plan for internal purposes, your budgets will be your guideline?and would not necessarily reflect the same results as your budgets for outside consumption. This is due to what are called Generally Accepted Accounting Procedures or GAAP. This is where accountants come in. GAAP defines in what ways items such as capital expenditures and the like are reflected or depreciated. We will get deeper into budgets later, but GAAP rules throughout the financial plan.
If the purpose of the business plan is to raise funding, the numbers and assumptions within the Financial Plan will be scrutinized and challenged?as will your request for funding. Before you start your financial plan, you need to determine what type of funding you are looking for and what it will be used for.
Funding usually falls into one of three categories:
Short term debt
Long term debt
Equity funding.
Short-term debt usually takes the form of lines of credit, trade credit, credit cards, and equipment leases. Long term debt usually refers to mortgages and other loans.
Debt is rarely used for operating capital; rather it is usually used to purchase equipment, and in the case of some short term, and most long term debt, is secured by the items purchased. While I do know many ISPs who were funded mostly?or in some cases solely?by credit cards, most operating capital is raised through equity funding, with the occasional small business loan thrown in. For the people providing the funds, debt is less risky, but provides a limited amount of upside usually in the form of interest.
Equity funding provides capital in return for a piece of your company. Usually companies are started on the owner's capital and then grow beyond the current fund source. Many owners have problems giving up their equity, but it is often the only choice for growth of the company. In these Internet days, equity funding is abundant as everyone is looking for the proverbial 'next Yahoo!' Be aware that there are quite a few regulations and issues connected with taking equity funding. Also in taking equity funding you take on a fiscal responsibility to your investors, and they may want to make changes within your company.
First $teps
The first round of outside capital is usually in the form of 'Angel Funding.' Angel funding is seed money that is considered a risky investment by the 'angel,' as angel funding usually comes in the early stages of the company's development.
The next rounds of funding are often from Venture Capital firms. Be aware that both VCs and angels are likely to take a significant portion of your company in return for their investment. My best advice is to be careful and realize that 5 percent of a $100 million company is worth more then 100 percent of a $1 million company. VCs and Angels are also looking for a quick and generous return on investment. (ROI). You will need to demonstrate what their ROI will be and in what form it will be delivered to them.
So now that you have an idea of the different types of funding and an idea of what you need, what goes into a Financial Plan?
A complete Financial Plan consists of the following sections:
Financial Plan Summary
Situational Review
Financial Goals
Cash Flow Planning
Financial Controls
ISP Business Plan - Part 5: The Financial Plan - continued
Financial Plan Summary and Situational Review
These sections provide an overall high level view of your Financial Plan. The Financial Plan Summary and Situational Review should include bottom line numbers such as profit, net loss, gross profit margin and other useful bottom line numbers. Within the Situational review, you want to discuss your financial history, if you have one, and key historical profit and loss numbers.
The Financial Goals section should cover your overall financial goals and how you plan to reach them. Possible goals include higher monthly recurring revenue, lower costs, and positive cash flow. If you are seeking outside financing you should stress either your ability to pay back the debt or maximize the return on investment. You should also discuss your growth rates both historical and projected. Do not be afraid to say that your goal is to make a profit or increase your profit margin. Just because you are an Internet company, does not mean you have to loose money.
Cash-Flow Planning
This sction is an overall view of the cash flow budget, which should be included in the appendix. The first step in determining your cash budget is to determine your fixed and variable costs. Fixed costs include rent, utilities, and general and administrative costs. Variable costs include dial-up ports, phone lines, and any costs that are directly related to each user you add.
Within the budgets in your appendix, you should start with a wages and salaries and determine your variable cost of goods sold. For a detailed explanation of determining your costs, please visit: http://www.howtosell.net/html/archives.html.
Once you have determined your cost of goods sold, you can use either a projection of your past sales or your sales forecast to determine your monthly income and put it together for a framework of your cash budget. Keep in mind that bad debt and accounts receivable will alter your income numbers and should be reflected accordingly.
Ideally you would project out 3 years in advance, but in the Internet business pro forma cash budgets are 1 year projections. A cash budget may look like this: (These numbers are samples only, and do not reflect your business or possible projections.)
Pro Forma Cash Budget for Planning Year 1 (Table 3)
Planning Month 1 2 3 4 5
Total Cash Inflows $3,197.50 $6,858.75 $12,862.50 $19,819.50 $29,093.75
Cash Outflows
??Cost of Goods Sold $611.30 $1,477.75 $2,954.85 $4,883.95 $7,387.45
??Wages & Salaries $12,250.01 $12,250.01 $12,250.01 $12,250.01 $12,250.01
??Payroll Taxes $1,470.00 $1,470.00 $1,470.00 $1,470.00 $1,470.00
??Fringe Benefits $1,715.00 $1,715.00 $1,715.00 $1,715.00 $1,715.00
??Rent & Leases $2,500.00 $2,500.00 $2,500.00 $2,500.00 $2,500.00
??Utilities $750.00 $750.00 $750.00 $750.00 $750.00
??Capital Expenditures $10,000.00 ? ? ? ?
??Internet Connectivity $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
??Travel & Entertainment $1,250.00 $1,250.00 $1,250.00 $1,250.00 $1,250.00
??Marketing $20,000.00 $17,500.00 $15,000.00 $10,000.00 $10,000.00
??Postage & Supplies $250.00 $250.00 $250.00 $250.00 $250.00
??Accounting & Legal $500.00 $500.00 $500.00 $500.00 $500.00
??Miscellaneous $500.00 $500.00 $500.00 $500.00 $500.00
Total Cash Outflows $52,796.31 $41,162.76 $40,239.86 $37,268.96 $39,822.46
Net Cash Flow ($49,598.81) ($34,304.01) ($27,377.36) ($17,449.46) ($10,728.71)
???[Plus]
Beginning Cash Balance $150,000.00 $100,401.19 $66,097.17 $38,719.81 $21,270.35
Ending Cash Balance $100,401.19 $66,097.17 $38,719.81 $21,270.35 $10,541.64
Financial Controls
This section describes what checks and balances are in place to assure that you reach your goals and stay within budget. You should also include how often you will look at the metrics and what corrective action will be taken should those numbers be missed.
In the end your Financial Plan should truly show what financial state your business is or will be in. Readers of your business plan will use this section to determine how much risk there is in investing in your company and what your future growth potential is. After all, when a Venture Capitalist is looking at your business plan, and thinking about investing in your company, what they are really doing is investing in you. You need to show that you are worth investing in and that the firm providing your funding will make money on their investment.
Part 1: The Basics
Part 2: Industry Analysis and Forecast
Part 3: The Marketing Plan
Part 4: Operating & Orginizational Plans
Part 5: The Financial Plan
Part 6: Putting It All Together
Part 6: Putting It All Together
Building an ISP Business Plan
Building a business plan is monumental task, and the most important part of all?presentation?is still ahead. After all, you don't get a second chance to make a first impression. by Jason Zigmont
I began this series with a simple statement that I'd like to reiterate, now that we're arriving at the end of our journey:
"You choose your destiny, and your business plan is your road map."
We've spent the past five columns examining the primary sections of a business plan, and their importance. To recap:
In Part 2, we looked at developing an Industry and Market Analysis and the Sales Forecast.
The first of these delves into the industry as a whole as well as the competition in your local or niche market. The second develops the framework for your Financial Plan and Marketing Plan.
In Part 3, we discussed the importance (and the organization) of a complete Marketing Plan.
Your Marketing Plan lays out your marketing strategy and describes the niche you are marketing to. In this ever-changing ISP market, many ISPs are solely marketing machines, and this may be the section that sets you apart from the rest.
In Part 4, we looked at Operating and Organizational Plans.
Your Operating Plan describes in detail how you will operate your ISP, your technology, and network topology. The Organizational Plan discusses who you are and the qualifications you have to run your ISP. After all, when someone invests in your ISP, they are investing in your plans and your ability to execute them.
In Part 5, we drilled down on Financial Plans.
Your Financial Plan demonstrates your current and future financial conditions. It should also describe your investor's return on investment (ROI) and your financial goals.
Now, we arrive at the culmination: how to put it all together and present it to the correct people.
Final act
When your business plan is finished, it should contain the following sections:
Executive Summary
Financing Proposal
Business Description
Industry Analysis
Market Analysis and Sales Forecast
Marketing Plan
Operating Plan
Organization Plan
Financial Plan
The first five columns covered all of these sections in detail except for first two, the Executive Summary and the Financing Proposal.
Executive Summary
This is a super-condensed summation of the entire plan. It is the first page of text in your business plan and will be the first (and sometimes the only) thing in your business plan that gets read. Therefore it forms your readers' the first impression, and as the saying goes 'You never get a second chance to make a first impression'.
The Executive Summary is generally about one page long?with a maximum of two pages?and typically consists of the following sections:
Business Concept and Mission Statement
Operating Plan Summary
Marketing Plan Summary
Financial Plan Summary
While many people may joke about mission statements being meaningless, your Business Concept and Mission Statement should be the best explanation of your vision, background, and target market you can craft?and should take up four paragraphs or less.
Your Mission Statement should be something everyone in your company knows by heart?and your guiding light in making tough decisions. If you are a service-focused ISP, for example, you should explain that clearly in this section.
The Operating Plan, Marketing Plan, and Financial Plan Summaries are one- or two-paragraph condensations of the summaries found within the Operating, Financial, and Marketing plan sections. You should highlight the key points that are made in each section.
Your Operating Plan Summary should highlight the methods and procedures that make your ISP different.
Your Financial Plan Summary should highlight profitability and return on investment.
A sample Marketing Plan Summary might look like this:
QEI.net's product will be marketed to middle and upper income residential users and small office/home office users. The company's sales will be sufficient to break even and gain a market share of 5,000 users in the first planning year.
This plan includes intensive customer interaction to foster additional word of mouth sales, which is the largest source of sales for ISPs, and bring down the cost to acquire customers.
ISP Business Plan - Part 6: Putting It Together - continued
Financing Proposal
This important section is a one- to two-page high-level description of your Financial Plan plus a description of the funding you are requesting. The reader of the business plan will be looking at your Financing Proposal to determine whether or not your requests fit within the reader's business funding model.
Readers will be looking for key metrics within your Financing Proposal such as return on investment, profitability, cash flow, and financial controls. The Financing Proposal should describe the amount of money you are requesting, the format of the financing, and the return on investment.
Litmus test
The reader will often use the Financing Proposal and the Executive Summary as a first test of whether or not they are interested in investing in your type of company and/or in the type of funding you are requesting.
Keep in mind that financial sources such as banks, angels, or venture capitalists all have certain parameters of their ideal investments. You would not go to an angel or VC for a loan, and conversely you wouldn't approach a bank for an equity investment. Beyond the type of investment, most organizations also have a monetary minimum and maximum that you would need to fit within.
Once you have completed the contents of your business plan, you need to add a Title Page and a Table of Contents. All of the material should then be professionally reproduced and bound for presentation. Presentation is very important to the reader because you are trying to tastefully make your business plan stand out from the pile of business plans they have on their desk. Most funding sources receive multiple business plans every day and if yours has a coffee stain on it and is held together by twine, it is most likely going to go staight into the circular file.
Covering your tracks
When you are presenting your business plan to a bank or any other outside source, add a cover letter to your business plan and be sure to attach your business card so that they have all of your contact information. The last thing you would want is to receive the funding and have the bank not be able to contact you to give you the funds.
In the end, I cannot over-stress the importance of business planning. Beyond the external financing uses of a business plan, your plan will help you to be more effective and focus on what you do best. While it may take you 80+ hours to develop the plan, in the end it will save you hundreds of hours by keeping you on the path you set out on in the beginning.
For more information about business planning and resources for information, please visit:
Research Resources:
?Forrester Research
?Gartner Group
?NUA Internet Surveys
?Cahners In-Stat Group
?U.S. Census
Business Resources:
Service Corps of Retired Executives
?Small Business Association
?HowToSell.net
?ISP-Lists
?ISP-Planet
Chapters:
Part 1: The Basics
Part 2: Industry Analysis and Forecast
Part 3: The Marketing Plan
Part 4: Operating & Orginizational Plans
Part 5: The Financial Plan
Part 6: Putting It All Together
Part 5: The Financial Plan
Building an ISP Business Plan
???
A financial plan provides the core justification for your solicitation of outside funding?the dollars and sense of how you'll make investors' money grow. Sound important?
by Jason Zigmont
My head literally hurts when I have to sit down and crunch numbers. I am not an accountant (IANAA), and my hat goes off to those who are. Before I launch into this column, I want to make absolutely sure you understand that I am not an accountant, and that any financial plan or budgets should be thoroughly looked over by a qualified certified public accountant.
DISCLAIMER:
The information within this column is for educational purposes only and should not be considered financial advice.
So what exactly is a Financial Plan?
Your Financial Plan discloses your current financial condition and details your projected, or pro forma, financial situation and the type and amount of funding you need to get from your current to your projected numbers.
If you are putting together your business plan for internal purposes, your budgets will be your guideline?and would not necessarily reflect the same results as your budgets for outside consumption. This is due to what are called Generally Accepted Accounting Procedures or GAAP. This is where accountants come in. GAAP defines in what ways items such as capital expenditures and the like are reflected or depreciated. We will get deeper into budgets later, but GAAP rules throughout the financial plan.
If the purpose of the business plan is to raise funding, the numbers and assumptions within the Financial Plan will be scrutinized and challenged?as will your request for funding. Before you start your financial plan, you need to determine what type of funding you are looking for and what it will be used for.
Funding usually falls into one of three categories:
Short term debt
Long term debt
Equity funding.
Short-term debt usually takes the form of lines of credit, trade credit, credit cards, and equipment leases. Long term debt usually refers to mortgages and other loans.
Debt is rarely used for operating capital; rather it is usually used to purchase equipment, and in the case of some short term, and most long term debt, is secured by the items purchased. While I do know many ISPs who were funded mostly?or in some cases solely?by credit cards, most operating capital is raised through equity funding, with the occasional small business loan thrown in. For the people providing the funds, debt is less risky, but provides a limited amount of upside usually in the form of interest.
Equity funding provides capital in return for a piece of your company. Usually companies are started on the owner's capital and then grow beyond the current fund source. Many owners have problems giving up their equity, but it is often the only choice for growth of the company. In these Internet days, equity funding is abundant as everyone is looking for the proverbial 'next Yahoo!' Be aware that there are quite a few regulations and issues connected with taking equity funding. Also in taking equity funding you take on a fiscal responsibility to your investors, and they may want to make changes within your company.
First $teps
The first round of outside capital is usually in the form of 'Angel Funding.' Angel funding is seed money that is considered a risky investment by the 'angel,' as angel funding usually comes in the early stages of the company's development.
The next rounds of funding are often from Venture Capital firms. Be aware that both VCs and angels are likely to take a significant portion of your company in return for their investment. My best advice is to be careful and realize that 5 percent of a $100 million company is worth more then 100 percent of a $1 million company. VCs and Angels are also looking for a quick and generous return on investment. (ROI). You will need to demonstrate what their ROI will be and in what form it will be delivered to them.
So now that you have an idea of the different types of funding and an idea of what you need, what goes into a Financial Plan?
A complete Financial Plan consists of the following sections:
Financial Plan Summary
Situational Review
Financial Goals
Cash Flow Planning
Financial Controls
ISP Business Plan - Part 5: The Financial Plan - continued
Financial Plan Summary and Situational Review
These sections provide an overall high level view of your Financial Plan. The Financial Plan Summary and Situational Review should include bottom line numbers such as profit, net loss, gross profit margin and other useful bottom line numbers. Within the Situational review, you want to discuss your financial history, if you have one, and key historical profit and loss numbers.
The Financial Goals section should cover your overall financial goals and how you plan to reach them. Possible goals include higher monthly recurring revenue, lower costs, and positive cash flow. If you are seeking outside financing you should stress either your ability to pay back the debt or maximize the return on investment. You should also discuss your growth rates both historical and projected. Do not be afraid to say that your goal is to make a profit or increase your profit margin. Just because you are an Internet company, does not mean you have to loose money.
Cash-Flow Planning
This sction is an overall view of the cash flow budget, which should be included in the appendix. The first step in determining your cash budget is to determine your fixed and variable costs. Fixed costs include rent, utilities, and general and administrative costs. Variable costs include dial-up ports, phone lines, and any costs that are directly related to each user you add.
Within the budgets in your appendix, you should start with a wages and salaries and determine your variable cost of goods sold. For a detailed explanation of determining your costs, please visit: http://www.howtosell.net/html/archives.html.
Once you have determined your cost of goods sold, you can use either a projection of your past sales or your sales forecast to determine your monthly income and put it together for a framework of your cash budget. Keep in mind that bad debt and accounts receivable will alter your income numbers and should be reflected accordingly.
Ideally you would project out 3 years in advance, but in the Internet business pro forma cash budgets are 1 year projections. A cash budget may look like this: (These numbers are samples only, and do not reflect your business or possible projections.)
Pro Forma Cash Budget for Planning Year 1 (Table 3)
Planning Month 1 2 3 4 5
Total Cash Inflows $3,197.50 $6,858.75 $12,862.50 $19,819.50 $29,093.75
Cash Outflows
??Cost of Goods Sold $611.30 $1,477.75 $2,954.85 $4,883.95 $7,387.45
??Wages & Salaries $12,250.01 $12,250.01 $12,250.01 $12,250.01 $12,250.01
??Payroll Taxes $1,470.00 $1,470.00 $1,470.00 $1,470.00 $1,470.00
??Fringe Benefits $1,715.00 $1,715.00 $1,715.00 $1,715.00 $1,715.00
??Rent & Leases $2,500.00 $2,500.00 $2,500.00 $2,500.00 $2,500.00
??Utilities $750.00 $750.00 $750.00 $750.00 $750.00
??Capital Expenditures $10,000.00 ? ? ? ?
??Internet Connectivity $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00
??Travel & Entertainment $1,250.00 $1,250.00 $1,250.00 $1,250.00 $1,250.00
??Marketing $20,000.00 $17,500.00 $15,000.00 $10,000.00 $10,000.00
??Postage & Supplies $250.00 $250.00 $250.00 $250.00 $250.00
??Accounting & Legal $500.00 $500.00 $500.00 $500.00 $500.00
??Miscellaneous $500.00 $500.00 $500.00 $500.00 $500.00
Total Cash Outflows $52,796.31 $41,162.76 $40,239.86 $37,268.96 $39,822.46
Net Cash Flow ($49,598.81) ($34,304.01) ($27,377.36) ($17,449.46) ($10,728.71)
???[Plus]
Beginning Cash Balance $150,000.00 $100,401.19 $66,097.17 $38,719.81 $21,270.35
Ending Cash Balance $100,401.19 $66,097.17 $38,719.81 $21,270.35 $10,541.64
Financial Controls
This section describes what checks and balances are in place to assure that you reach your goals and stay within budget. You should also include how often you will look at the metrics and what corrective action will be taken should those numbers be missed.
In the end your Financial Plan should truly show what financial state your business is or will be in. Readers of your business plan will use this section to determine how much risk there is in investing in your company and what your future growth potential is. After all, when a Venture Capitalist is looking at your business plan, and thinking about investing in your company, what they are really doing is investing in you. You need to show that you are worth investing in and that the firm providing your funding will make money on their investment.
Part 1: The Basics
Part 2: Industry Analysis and Forecast
Part 3: The Marketing Plan
Part 4: Operating & Orginizational Plans
Part 5: The Financial Plan
Part 6: Putting It All Together
Part 6: Putting It All Together
Building an ISP Business Plan
Building a business plan is monumental task, and the most important part of all?presentation?is still ahead. After all, you don't get a second chance to make a first impression. by Jason Zigmont
I began this series with a simple statement that I'd like to reiterate, now that we're arriving at the end of our journey:
"You choose your destiny, and your business plan is your road map."
We've spent the past five columns examining the primary sections of a business plan, and their importance. To recap:
In Part 2, we looked at developing an Industry and Market Analysis and the Sales Forecast.
The first of these delves into the industry as a whole as well as the competition in your local or niche market. The second develops the framework for your Financial Plan and Marketing Plan.
In Part 3, we discussed the importance (and the organization) of a complete Marketing Plan.
Your Marketing Plan lays out your marketing strategy and describes the niche you are marketing to. In this ever-changing ISP market, many ISPs are solely marketing machines, and this may be the section that sets you apart from the rest.
In Part 4, we looked at Operating and Organizational Plans.
Your Operating Plan describes in detail how you will operate your ISP, your technology, and network topology. The Organizational Plan discusses who you are and the qualifications you have to run your ISP. After all, when someone invests in your ISP, they are investing in your plans and your ability to execute them.
In Part 5, we drilled down on Financial Plans.
Your Financial Plan demonstrates your current and future financial conditions. It should also describe your investor's return on investment (ROI) and your financial goals.
Now, we arrive at the culmination: how to put it all together and present it to the correct people.
Final act
When your business plan is finished, it should contain the following sections:
Executive Summary
Financing Proposal
Business Description
Industry Analysis
Market Analysis and Sales Forecast
Marketing Plan
Operating Plan
Organization Plan
Financial Plan
The first five columns covered all of these sections in detail except for first two, the Executive Summary and the Financing Proposal.
Executive Summary
This is a super-condensed summation of the entire plan. It is the first page of text in your business plan and will be the first (and sometimes the only) thing in your business plan that gets read. Therefore it forms your readers' the first impression, and as the saying goes 'You never get a second chance to make a first impression'.
The Executive Summary is generally about one page long?with a maximum of two pages?and typically consists of the following sections:
Business Concept and Mission Statement
Operating Plan Summary
Marketing Plan Summary
Financial Plan Summary
While many people may joke about mission statements being meaningless, your Business Concept and Mission Statement should be the best explanation of your vision, background, and target market you can craft?and should take up four paragraphs or less.
Your Mission Statement should be something everyone in your company knows by heart?and your guiding light in making tough decisions. If you are a service-focused ISP, for example, you should explain that clearly in this section.
The Operating Plan, Marketing Plan, and Financial Plan Summaries are one- or two-paragraph condensations of the summaries found within the Operating, Financial, and Marketing plan sections. You should highlight the key points that are made in each section.
Your Operating Plan Summary should highlight the methods and procedures that make your ISP different.
Your Financial Plan Summary should highlight profitability and return on investment.
A sample Marketing Plan Summary might look like this:
QEI.net's product will be marketed to middle and upper income residential users and small office/home office users. The company's sales will be sufficient to break even and gain a market share of 5,000 users in the first planning year.
This plan includes intensive customer interaction to foster additional word of mouth sales, which is the largest source of sales for ISPs, and bring down the cost to acquire customers.
ISP Business Plan - Part 6: Putting It Together - continued
Financing Proposal
This important section is a one- to two-page high-level description of your Financial Plan plus a description of the funding you are requesting. The reader of the business plan will be looking at your Financing Proposal to determine whether or not your requests fit within the reader's business funding model.
Readers will be looking for key metrics within your Financing Proposal such as return on investment, profitability, cash flow, and financial controls. The Financing Proposal should describe the amount of money you are requesting, the format of the financing, and the return on investment.
Litmus test
The reader will often use the Financing Proposal and the Executive Summary as a first test of whether or not they are interested in investing in your type of company and/or in the type of funding you are requesting.
Keep in mind that financial sources such as banks, angels, or venture capitalists all have certain parameters of their ideal investments. You would not go to an angel or VC for a loan, and conversely you wouldn't approach a bank for an equity investment. Beyond the type of investment, most organizations also have a monetary minimum and maximum that you would need to fit within.
Once you have completed the contents of your business plan, you need to add a Title Page and a Table of Contents. All of the material should then be professionally reproduced and bound for presentation. Presentation is very important to the reader because you are trying to tastefully make your business plan stand out from the pile of business plans they have on their desk. Most funding sources receive multiple business plans every day and if yours has a coffee stain on it and is held together by twine, it is most likely going to go staight into the circular file.
Covering your tracks
When you are presenting your business plan to a bank or any other outside source, add a cover letter to your business plan and be sure to attach your business card so that they have all of your contact information. The last thing you would want is to receive the funding and have the bank not be able to contact you to give you the funds.
In the end, I cannot over-stress the importance of business planning. Beyond the external financing uses of a business plan, your plan will help you to be more effective and focus on what you do best. While it may take you 80+ hours to develop the plan, in the end it will save you hundreds of hours by keeping you on the path you set out on in the beginning.
For more information about business planning and resources for information, please visit:
Research Resources:
?Forrester Research
?Gartner Group
?NUA Internet Surveys
?Cahners In-Stat Group
?U.S. Census
Business Resources:
Service Corps of Retired Executives
?Small Business Association
?HowToSell.net
?ISP-Lists
?ISP-Planet
Chapters:
Part 1: The Basics
Part 2: Industry Analysis and Forecast
Part 3: The Marketing Plan
Part 4: Operating & Orginizational Plans
Part 5: The Financial Plan
Part 6: Putting It All Together
Part 6: Putting It All Together
Building an ISP Business Plan
Building a business plan is monumental task, and the most important part of all?presentation?is still ahead. After all, you don't get a second chance to make a first impression. by Jason Zigmont
I began this series with a simple statement that I'd like to reiterate, now that we're arriving at the end of our journey:
"You choose your destiny, and your business plan is your road map."
We've spent the past five columns examining the primary sections of a business plan, and their importance. To recap:
In Part 2, we looked at developing an Industry and Market Analysis and the Sales Forecast.
The first of these delves into the industry as a whole as well as the competition in your local or niche market. The second develops the framework for your Financial Plan and Marketing Plan.
In Part 3, we discussed the importance (and the organization) of a complete Marketing Plan.
Your Marketing Plan lays out your marketing strategy and describes the niche you are marketing to. In this ever-changing ISP market, many ISPs are solely marketing machines, and this may be the section that sets you apart from the rest.
In Part 4, we looked at Operating and Organizational Plans.
Your Operating Plan describes in detail how you will operate your ISP, your technology, and network topology. The Organizational Plan discusses who you are and the qualifications you have to run your ISP. After all, when someone invests in your ISP, they are investing in your plans and your ability to execute them.
In Part 5, we drilled down on Financial Plans.
Your Financial Plan demonstrates your current and future financial conditions. It should also describe your investor's return on investment (ROI) and your financial goals.
Now, we arrive at the culmination: how to put it all together and present it to the correct people.
Final act
When your business plan is finished, it should contain the following sections:
Executive Summary
Financing Proposal
Business Description
Industry Analysis
Market Analysis and Sales Forecast
Marketing Plan
Operating Plan
Organization Plan
Financial Plan
The first five columns covered all of these sections in detail except for first two, the Executive Summary and the Financing Proposal.
Executive Summary
This is a super-condensed summation of the entire plan. It is the first page of text in your business plan and will be the first (and sometimes the only) thing in your business plan that gets read. Therefore it forms your readers' the first impression, and as the saying goes 'You never get a second chance to make a first impression'.
The Executive Summary is generally about one page long?with a maximum of two pages?and typically consists of the following sections:
Business Concept and Mission Statement
Operating Plan Summary
Marketing Plan Summary
Financial Plan Summary
While many people may joke about mission statements being meaningless, your Business Concept and Mission Statement should be the best explanation of your vision, background, and target market you can craft?and should take up four paragraphs or less.
Your Mission Statement should be something everyone in your company knows by heart?and your guiding light in making tough decisions. If you are a service-focused ISP, for example, you should explain that clearly in this section.
The Operating Plan, Marketing Plan, and Financial Plan Summaries are one- or two-paragraph condensations of the summaries found within the Operating, Financial, and Marketing plan sections. You should highlight the key points that are made in each section.
Your Operating Plan Summary should highlight the methods and procedures that make your ISP different.
Your Financial Plan Summary should highlight profitability and return on investment.
A sample Marketing Plan Summary might look like this:
QEI.net's product will be marketed to middle and upper income residential users and small office/home office users. The company's sales will be sufficient to break even and gain a market share of 5,000 users in the first planning year.
This plan includes intensive customer interaction to foster additional word of mouth sales, which is the largest source of sales for ISPs, and bring down the cost to acquire customers.
ISP Business Plan - Part 6: Putting It Together - continued
Financing Proposal
This important section is a one- to two-page high-level description of your Financial Plan plus a description of the funding you are requesting. The reader of the business plan will be looking at your Financing Proposal to determine whether or not your requests fit within the reader's business funding model.
Readers will be looking for key metrics within your Financing Proposal such as return on investment, profitability, cash flow, and financial controls. The Financing Proposal should describe the amount of money you are requesting, the format of the financing, and the return on investment.
Litmus test
The reader will often use the Financing Proposal and the Executive Summary as a first test of whether or not they are interested in investing in your type of company and/or in the type of funding you are requesting.
Keep in mind that financial sources such as banks, angels, or venture capitalists all have certain parameters of their ideal investments. You would not go to an angel or VC for a loan, and conversely you wouldn't approach a bank for an equity investment. Beyond the type of investment, most organizations also have a monetary minimum and maximum that you would need to fit within.
Once you have completed the contents of your business plan, you need to add a Title Page and a Table of Contents. All of the material should then be professionally reproduced and bound for presentation. Presentation is very important to the reader because you are trying to tastefully make your business plan stand out from the pile of business plans they have on their desk. Most funding sources receive multiple business plans every day and if yours has a coffee stain on it and is held together by twine, it is most likely going to go staight into the circular file.
Covering your tracks
When you are presenting your business plan to a bank or any other outside source, add a cover letter to your business plan and be sure to attach your business card so that they have all of your contact information. The last thing you would want is to receive the funding and have the bank not be able to contact you to give you the funds.
In the end, I cannot over-stress the importance of business planning. Beyond the external financing uses of a business plan, your plan will help you to be more effective and focus on what you do best. While it may take you 80+ hours to develop the plan, in the end it will save you hundreds of hours by keeping you on the path you set out on in the beginning.
For more information about business planning and resources for information, please visit:
Research Resources:
?Forrester Research
?Gartner Group
?NUA Internet Surveys
?Cahners In-Stat Group
?U.S. Census
Business Resources:
Service Corps of Retired Executives
?Small Business Association
?HowToSell.net
?ISP-Lists
?ISP-Planet
Chapters:
Part 1: The Basics
Part 2: Industry Analysis and Forecast
Part 3: The Marketing Plan
Part 4: Operating & Orginizational Plans
Part 5: The Financial Plan
Part 6: Putting It All Together
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